A Single Phrase Can Undermine Corporate Value: Understanding Sustainability Communication Risks

A single phrase can influence trust.

Sustainability communication today requires attention not only to the risks of saying nothing, but also to the risks of overstating claims. Why is “expression risk” increasingly becoming a management issue?

Environmental claims are no longer just a matter of marketing. They are increasingly recognized as issues connected to legal compliance and corporate management. ESG rating agencies tend to assess the consistency between actual practices and how they are communicated, while scrutiny from investors, regulators, and the media continues to intensify.

If a single expression leads to misunderstanding, it may affect not only reputation and trust, but also corporate evaluation and financing conditions. This is something organizations may need to consider carefully.

Latest Developments in the EU and Japan

In Europe, regulatory frameworks around environmental claims are being further developed.

• EU Green Claims Directive (under deliberation)
  A direction toward requiring scientific substantiation and third-party verification
  
• Empowering Consumers Directive (adopted; being implemented across EU member states)
  A framework aimed at reducing vague or misleading environmental claims and supporting informed consumer decision-making
  
• CSRD × ESRS
  Increasing expectations for more concrete (including quantitative) and consistent disclosures

Overall, the principle that “claims should be supported by evidence” is becoming more structured within regulatory systems.

In Japan, what was previously guidance-based is gradually evolving into more practical expectations in business operations.

1. Consumer Affairs Agency: Strengthened enforcement of the Act against Unjustifiable Premiums and Misleading Representations
   
   • Increased monitoring of environmental claims
   • Requirement to present reasonable grounds
     
2. Ministry of the Environment: Updated environmental labeling guidelines
   
   • Emphasis on lifecycle considerations
   • Caution against vague expressions
     
3. Ministry of Economy, Trade and Industry (METI): GX-related disclosures
   
   • Greater expectations for concrete transition plans
   • Emphasis on feasibility
     
4. SSBJ (Sustainability Standards Board of Japan)
   
   • Development of ISSB-aligned standards
   • Potential linkage to future assurance and auditing

In this context, categorical or absolute expressions may carry increasing risk and may require more careful consideration.

How a Single Word Can Influence Perception

In sustainability communication, evaluations are often shaped less by intent and more by how information is expressed.

• ESG rating agencies
• Government bodies
• Investors
• Media

These stakeholders assess not only what companies are doing, but also how those actions are described. Even with the same initiatives, differences in wording may lead to different interpretations.

No matter how sincere the efforts are, unclear expressions may introduce evaluation risks.

Common Expressions That Require Caution

The following types of expressions are often highlighted in international guidelines:

• “Environmentally friendly”
  → Broad and potentially lacking specificity
  
• “100% sustainable”
  → Difficult to substantiate; scope may be unclear
  
• “Industry-leading environmental performance”
  → May require clear comparative evidence
  
• “Carbon-neutral product”
  → Scope definition is important

While these expressions are positive in intent, insufficient explanation of conditions or evidence may create a risk of misunderstanding. In some cases, they may be questioned by authorities or consumer groups as unclear or potentially misleading.

Real-World Example

In December 2022, Japan’s Consumer Affairs Agency issued orders against two companies regarding claims such as “biodegradable” and “environmentally friendly” used for cutlery, straws, and cups.

The issue was not necessarily intentional misrepresentation, but rather that conditions and scope were not sufficiently explained. The labeling was considered likely to mislead consumers into believing the products were significantly superior in environmental performance.

Even positive claims may require attention if the following are not clearly specified:

• Under what conditions
• Within what scope
• To what extent the claim applies

Why It Can Become a Risk: Three Key Perspectives

Environmental claims are generally assessed from three perspectives:

1. Substantiation
   • Is there scientific evidence?
   • Can it be verified by a third party?
     
2. Clarity
   • Is it understandable without causing misunderstandings?
   • Is the scope clearly defined?
     
3. Scope (Lifecycle)
   • Which stages are covered? (e.g., production only, or through disposal?)

Environmental impact is typically evaluated across the entire lifecycle. Claims such as “carbon neutral” may be considered incomplete if certain scopes (e.g., Scope 3) are not included.

Why Expression Checks Relate to Corporate Value

Ambiguous expressions may, in some cases, be perceived as a lack of transparency in internal controls.

• Mitigation of reputational risk
• Compliance with advertising and labeling regulations
• Improvement in ESG evaluations
• Strengthening investor confidence

These may appear as separate topics, but they are all supported by transparency and consistency in communication.

Not only the initiatives themselves, but also how they are expressed and disclosed can serve as signals of governance quality and management approach.

Improving the accuracy of expression may therefore contribute to reducing risks to corporate value and enhancing credibility.

Turning Expression from Risk into Value

Neuromagic provides support for expression checks aimed at reducing greenwashing risk, as well as for sustainability-related disclosures.

• Expression risk assessment framework
• Three-axis check (substantiation / clarity / scope)
• Consistency checks across disclosures (web, integrated reports, IR materials)
• Design of internal approval processes

We view expression not merely as a wording issue, but as part of a broader management structure. Accordingly, we support not only phrasing, but also the underlying processes.

If you have any questions, please feel free to contact us.

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